Impact of Proposed UK Holiday Tax on the Mortgage Market

Proposed UK Holiday Tax: The Facts

As of 16th April 2026, the Confederation of British Industry (CBI) has warned that a proposed English holiday tax could cost the UK an additional £500 million. The Government is planning to introduce a vacation tax authority to Mayoral Strategic Authorities. This would allow mayors and town officials to impose overnight visitor levies on hotels, short-stay accommodations, and bed and breakfast visitors. Manchester expects to generate £3.8 million each year from this tax, while Liverpool projects £939,000. Since 2023, Manchester’s Accommodation BID zone has been adding £1 a night per room/unit to guest’s stays, directing the funds towards tourism marketing campaigns, large-scale events, conferences, festivals, and improving guest welcome and street cleanliness. Hospitality UK has stated that a two-week vacation could cost up to £100 more under this potential holiday tax.

Real-World Impact on Mortgage Holders

Let’s consider the case of a landlord owning a £200,000 interest-only BTL property in Manchester. Under the proposed tax, the landlord could see an increase in costs due to the potential reduction in demand for short-term rentals. If the tax leads to a 10% decrease in occupancy rates, this could result in a loss of £2,000 in annual rental income. This loss would increase the landlord’s monthly costs from £917 to £1,083, an increase of £166 per month.

For a first-time buyer considering purchasing a £250,000 property for short-term rental purposes, the proposed tax could also have significant implications. If we assume a 75% LTV, the monthly repayments would be £1,432. However, if the tax results in a 10% decrease in occupancy rates, the buyer could see a reduction in rental income of £2,500 per year. This decrease in income would effectively increase their monthly costs from £1,432 to £1,641, an increase of £209 per month.

Market Context and Implications

The current base rate is 3.75% as of April 2026. If the proposed tax is implemented, it could potentially lead to a decrease in demand for short-term rental properties. This could, in turn, lead to a decrease in property values in areas heavily reliant on short-term rentals, such as holiday destinations. A decrease in property values could potentially impact the LTV ratios for mortgage holders, potentially leading to higher interest rates for those with higher LTV ratios.

For the BTL market, the proposed tax could lead to a decrease in demand for BTL mortgages if landlords anticipate a decrease in rental income due to the tax. This could potentially lead to a decrease in competition among lenders, potentially leading to higher interest rates for BTL mortgages.

For first-time buyers considering entering the short-term rental market, the proposed tax could potentially make it less attractive due to the potential decrease in rental income. This could potentially lead to a decrease in demand for properties suitable for short-term rentals, potentially leading to a decrease in property values in these areas.